Industrial Policies vs Public Goods under Asymmetric Information

Industrial Policies vs Public Goods under Asymmetric Information

This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (for example, infrastructure) and industrial policies (for example, firm- or sector-speci...

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Main Authors: Hevia, Constantino, Loayza, Norman, Meza-Cuadra, Claudia
Format: Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2017
Subjects:
INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
Online Access:http://documents.worldbank.org/curated/en/343061493917982244/Industrial-policies-vs-public-goods-under-asymmetric-information
http://hdl.handle.net/10986/26732
id okr-10986-26732
recordtype oai_dc
spelling okr-10986-267322021-06-08T14:42:46Z Industrial Policies vs Public Goods under Asymmetric Information Hevia, Constantino Loayza, Norman Meza-Cuadra, Claudia INDUSTRIAL POLICY PUBLIC GOODS UNCERTAINTY PRIVATE INFORMATION FIRM SUBSIDIES CORPORATE TAX This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (for example, infrastructure) and industrial policies (for example, firm- or sector-specific subsidies). After a discussion of the literature, the paper sets up the model economy, consisting of a government and a set of heterogeneous firms. It then presents the first-best allocation (under full information) of government resources among firms. Next, uncertainty is introduced by restricting information on firm productivity to be private to the firm. The paper develops an optimal contract (which replicates the first best), consisting of a tax-based mechanism that induces firms to reveal their true productivity. As this contract requires high government capacity, other, simpler policies are considered. The paper concludes that providing public goods is likely to dominate industrial policies under most scenarios, especially when government capacity is low. 2017-05-23T22:20:58Z 2017-05-23T22:20:58Z 2017-05 Working Paper http://documents.worldbank.org/curated/en/343061493917982244/Industrial-policies-vs-public-goods-under-asymmetric-information http://hdl.handle.net/10986/26732 English en_US Policy Research Working Paper;No. 8052 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
spellingShingle INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
Hevia, Constantino
Loayza, Norman
Meza-Cuadra, Claudia
Industrial Policies vs Public Goods under Asymmetric Information
relation Policy Research Working Paper;No. 8052
description This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (for example, infrastructure) and industrial policies (for example, firm- or sector-specific subsidies). After a discussion of the literature, the paper sets up the model economy, consisting of a government and a set of heterogeneous firms. It then presents the first-best allocation (under full information) of government resources among firms. Next, uncertainty is introduced by restricting information on firm productivity to be private to the firm. The paper develops an optimal contract (which replicates the first best), consisting of a tax-based mechanism that induces firms to reveal their true productivity. As this contract requires high government capacity, other, simpler policies are considered. The paper concludes that providing public goods is likely to dominate industrial policies under most scenarios, especially when government capacity is low.
format Working Paper
author Hevia, Constantino
Loayza, Norman
Meza-Cuadra, Claudia
author_facet Hevia, Constantino
Loayza, Norman
Meza-Cuadra, Claudia
author_sort Hevia, Constantino
title Industrial Policies vs Public Goods under Asymmetric Information
title_short Industrial Policies vs Public Goods under Asymmetric Information
title_full Industrial Policies vs Public Goods under Asymmetric Information
title_fullStr Industrial Policies vs Public Goods under Asymmetric Information
title_full_unstemmed Industrial Policies vs Public Goods under Asymmetric Information
title_sort industrial policies vs public goods under asymmetric information
publisher World Bank, Washington, DC
publishDate 2017
url http://documents.worldbank.org/curated/en/343061493917982244/Industrial-policies-vs-public-goods-under-asymmetric-information
http://hdl.handle.net/10986/26732
_version_ 1764462728913616896

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